The Weekly Brief: Mexico

February 13, 2017 edition— Pemex bets on KMZ; Sonora’s solar project expands; and Banxico raised rates.





Last Week in a Minute or Less



Renewables & Electricity. CFE will invest MXN250bn in five years; ACCIONA and Tuto Energy’s Sonora solar project got bigger; and Iberdrola is now selling power to the MEM.


Natural Gas & Liquid Fuels. The CRE postponed the pipeline opening; 40% of Mexico’s pipelines are irregular; and CFE and GNF can look for new natural gas suppliers.


Oil & Gas Upstream. Pemex projects seven new farm-outs and will invest US$2.46bn in Ku Maloob Zap.


Money & Power. Mexico works on the NAFTA renegotiation; Moody’s worried over Mexico’s deficit; and the Federal Reserve and Banxico diverge on rates.


Déjà vu all over again. Last week’s readers were particularly interested in the opening of natural gas pipelines (Spanish); the 30% drop in 3P reserves (Spanish); and the Conermex estimate on solar energy growth (English).



The Road to Reform


Pemex plans seven new deep-water farm-outs. The state-owned company plans seven new farm-outs in the Plegado Perdido belt and the Mexican Cordillera (Spanish). The fields contain substantial crude oil reserves and dry and wet gas, but to be brought into production, domestic natural gas prices over 4 dollars per million BTU are required.


The CRE delayed the pipeline opening. The Energy Regulatory Commission (CRE) postponed the opening for private companies to use Pemex pipelines and storage terminals (Spanish). The due date for offers was February 15, but the CRE said it would be moved to sometime before March 30.


CENAGAS says energy projects are restrained by right-of-way injunctions… The National Center of Natural Gas Control (Cenagas) explained that the laws to protect social rights may put the brakes on viable projects (Spanish). Pipeline construction and electricity grids are affected by injunction requests over right-of-way.


…and 40% of Mexico’s current pipelines have irregular paperwork. Mexico’s government cannot prove to have rights-of-way over the land where 40% of Pemex gas and petrochemical pipelines run. Pemex said it is preparing to regularize the pipelines which will require renegotiating with landowners and paying again for access to the affected lands (Spanish).



Political Economy


NAFTA renegotiation is in the making. Mexico started a 90-day dialogue with private sector groups to establish parameters for renegotiation of NAFTA (English). The head of the US Chamber of Commerce believes President Donald Trump should renegotiate NAFTA to build upon rather than hinder the movement of products and people (English).


Illegal taps drained MXN97bn in four years. According to Dwight Dyer, independent consultant on energy sector security, illegal taps meant a loss of MXN97bn during the first four years of Peña Nieto’s term (Spanish). The Attorney General’s office is investigating 22 employees of CFE and Pemex for fuel theft, bribery, and document forgery (Spanish).


CFE goes all in with MXN250bn in five years. The state-owned company will channel MXN250bn of public and private investment to new generation and transmission projects, reducing transmission losses in five years (Spanish). An investment of MXN170bn will create 8GW of capacity, helping meet the expected 3% annual growth in electricity demand.


The latest gasoline subsidy will cost MXN841m. The new fuels subsidy to be paid by the Finance Ministry between February 4 and 17 on gasoline and diesel will cost MXN841m, Reforma newspaper calculates (Spanish). The Finance Ministry will pay 0.653, 0.107, and 0.451 pesos per liter on Magna, Premium, and diesel, respectively.



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Market Trends


Power tariffs up again in February. The state-owned company announced an increase of 6.4% to 8.4% on industrial rates and commercial rates went up by between 3.8% and 5.8% in February (Spanish). The CEO of CFE said subsidies to power tariffs will increase in 2017 by 30%.


The Federal Reserve and Banxico rates diverge. The Bank of Mexico raised the reference rate by 50 basis points, reaching 6.25% (Spanish). The difference between the reference rates of the Federal Reserve and Banxico is now expected to widen in 2017 at a greater pace than previously thought (Spanish).


Protests and blockades continue in Nuevo León, Tamaulipas, and Toluca. Due to a blockade protesting gasoline prices at the Ciudad Madero Storage Terminal, between 10 and 15 municipalities in San Luis Potosí, Tamaulipas, and Veracruz suffered shortages of oil (Spanish). Six airports supplied by the Madero terminal are affected by the blockades (Spanish).


Moody’s is worried over Mexico’s rating. The rating agency placed Mexico on a negative outlook  because of the increase in the federal deficit to 2.9% of GDP in 2016 (English) (Spanish). Moody’s expected a reduction of the deficit to 2.5% of GDP and considers the risk of President Trump’s protectionism a negative for Mexico.


US supplies and dollar sank oil despite OPEC’s efforts. Oil prices slumped as US crude inventories increased and the dollar strengthened (Spanish) (English). Analysts said that investors are on the defensive and a reduction in Chinese demand produced a global oversupply despite OPEC efforts to cut output (English).



Strategy & Operations


Pemex will fight for CFE and GNF loyalty. CFE and Gas Natural Fenosa (GNF) figure among the clients that buy 30% of Pemex’s volume and must choose between receiving the state-owned company’s service or a binding offer from private companies entering the market (Spanish). GNF buys 286 million cubic feet per day and CFE 234.7 MMcf/d.


Pemex bets US$2.46bn on Ku Maloob Zap. The National Hydrocarbons Commission (CNH) is studying Pemex’s plan to improve natural gas extraction at the Ku Maloob Zap field by investing US$2.4bn (Spanish). Last November, the CNH fined Pemex for exceeding the allowed limits for gas venting and imposed a mandatory adjustment program.


ACCIONA and Tuto Energy expand their Sonora project. The Puerto Libertad solar plant will increase by 50% its power generation to reach 339MWp, an additional 270MW of nominal capacity (Spanish). The expansion is the result of a private contract signed between the ACCIONA and Tuto Energy consortium and the Tuto Energy Trading company.


Iberdrola is selling power to the MEM. The Spanish company started selling energy to the Wholesale Electricity Market (MEM) since the Baja California III Combined Cycle Plant came onstream (Spanish). Iberdrola will offer 20MW to the MEM out of of the total 314MW capacity of the new plant.



Old School Social


Events in the world beyond your screen – go see and be seen!


The Mexico Energy Forum is February 15 at the Sheraton María Isabel, Mexico City.


The Pecom Petroleum Exhibition & Conference of Mexico is March 28-30 in Villahermosa, Tabasco.



Lateral Thinking


Car ban does not help Mexico City breathe. The driving restriction program, known as Hoy No Circula, was expected to reduce by 15% vehicle emissions, but the latest scientific analysis concluded there was no discernible effect (Spanish). Mexico City residents got around the restrictions by using taxis and buying more cars.



Quote of the Week


“El pueblo americano, olvidado de unos, compadecido de otros, y despreciado por la mayor parte, aparecerá ya con el esplendor y dignidad de que se ha hecho acreedor por la bizarría con que ha roto las cadenas del despotismo.”


“The American people, forgotten by some, pitied by others, and scorned by most, will appear with the splendor and dignity they deserve for the bravery with which they have broken the chains of tyranny.”



-Ignacio López Rayón (1773-1832), Mexican insurgent who fought in favor of Independence




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